01-08-2012, 12:51 PM
COST MANAGEMENT
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INTRODUCTION TO COST MANAGEMENT
1. A cost management system is primarily concerned with producing outputs for inter-nal information users, using inputs and pro-cesses needed to satisfy management ob-jectives. A cost management system is not bound by externally imposed criteria that define inputs and processes. Instead, the criteria that govern the inputs and processes are set by people within the company. A fi-nancial accounting system is primarily con-cerned with producing information for the company’s external information users. Cost management differs from financial account-ing in the following major ways: (1) an inter-nal focus, (2) an emphasis on the future, (3) freedom from GAAP and other mandatory rules, (4) a multidisciplinary scope, (5) an evaluation of individual segments within the firm, and (6) the provision of more detailed information.
2. The three broad objectives of a cost man-agement information system are (1) to cost out products, services, and other cost ob-jects; (2) to provide information for planning and control; and (3) to provide information for decision making.
3. The cost accounting system is a cost man-agement subsystem designed to assign costs to products, services, and other ob-jects as management needs specify. The operational control system is a cost man-agement subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control of ac-tivities.
Indirect costs:
Cost of lost sales to competitors who do have this service if the company chooses not to provide it.
Lost sales (no repeat orders) from frustrated customers who have difficulty dialing in (overloaded lines) and who must remain on hold for an inordinate amount of time.
Lower marketing costs in the long run as satisfied current customers pur-chase additional items.
Concluded
The reduction in promotional salary increases is particularly egregious in that he is reducing the salaries of others so that he may benefit. In effect, he is stealing from his subordinates. The reduction in maintenance budget is also a form of stealing—robbing future service potential to produce a current personal benefit.
An ethical dilemma does exist if the manager carries through with his plans. The dilemma exists because the manager wants to manipulate earnings to achieve personal financial gain. A company code of ethics and compliance monitoring is one recommendation. An internal audit could be used to detect and deter such questionable behavior. Furthermore, a company policy requiring managers to jus-tify any expenditure reductions in writing to both the employees and higher man-agement could discourage behavior like the manager’s. The best control, howev-er, is hiring managers with the integrity to do the right thing even when faced with the opportunity to cheat or steal.